Over the last year, we have seen an increasing trend in queries relating to the national minimum wage. It may sound simple but the question is "Are you paying all your workers the national minimum wage?"
The national minimum wage is exactly what it says. It is the minimum hourly rate that an organisation must pay to all its workers. From 1 April 2017, the national minimum wage rates increased again and workers are now entitled to the following;
On the face of it, readers may assume that the calculation is as simple as dividing the total pay by the total number of hours worked. Unfortunately, it is rarely that simple.
We have seen businesses attempt to include all pay received by the worker in order to offset their liability to pay national minimum/living wage. However, certain payments must be excluded, for example employers must discount overtime premiums (such as double-time). Payments like commission, performance related pay, bonus and on-call payments all have to be excluded in certain circumstances. In addition for workers whose working hours fluctuate, through say overtime or zero hours working, employers can end up inadvertently under-paying their staff. For example, employers can fall into the trap of excluding rest periods when establishing how many hours have been worked. As a result, these periods can become working time and therefore, periods for which the worker is entitled to receive a minimum hourly rate. The structure of the worker’s written employment contract and the organisation’s payroll and working patterns can help to determine the correct hours.
There are serious implications of failing to comply. HMRC can fine employers up to 200% of the under-payment which is capped at a staggering £20,000 per worker. This is in contrast to the pre-2014 position which was a maximum of 50% of the under-payment, capped at £5,000 per employer, per claim rather than per worker. Therefore previously the £5,000 cap could include multiple workers. This creates a substantial increase in the fine that can now be charged.
This is also a worry for company directors. In a case reported earlier in 2017, a director was disqualified for six years for, amongst other issues, failing to pay her workers the national minimum wage. A commentator on the case stated that a failure to pay national minimum wage to staff was ‘a clear breach of a director’s duties’. Whilst we consider this to be an extreme example, without question, prosecutions and the ‘naming and shaming’ of employers for flouting these laws is on the increase.
Any business failing to comply may also experience negative publicity and indirect consequences when it is looking to retain its best workers and recruit others. From our White Paper survey carried out in September 2016, the reputation of an employer was vital to attracting new workers. Rather surprisingly, those surveyed stated that the business’ reputation was the most persuasive factor (even compared to pay and benefits) in their decision to jump ship to a new organisation. In an increasingly tough recruitment market, where skills are in short supply, being ‘named and shamed’ may be a risk not worth taking.
In summary, if your business operates on or close to national minimum wage levels, we strongly recommend you undertake an audit, with assistance from us, to ensure you comply.